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Group - I
Paper 6 - Laws, Ethics and Governance
Section A: Industrial and Economic Laws
1. Comment on the following based on legal provisions as per the Indian Contract Act, 1872.
(A) K takes a seat in a bus run by VV Travels. VV travels operate bus service between Kolkata
and Durgapur. The bus was standing at its Bay in the Bus Terminus. Examine whether this amounts
to a contract under The Indian Contract Act, 1872.
Answer:
There is an implied offer to public at large by a transport company to carry passengers from one
destination to another. When K takes a seat in the bus, there is an implied acceptance of the
offer on his part, and there comes into existence a valid contract.
(B) R sent a consignment of goods worth 190,000 by railway and got railway receipt. Heobtained an advance of 160,000 from the bank and endorsed and delivered the railway
receipt in favour of the bank by way of security. The railway failed to deliver the goods at thedestination. The bank filed a suit against the railway for 1 90,000. Decide in the light of
provisions of the Indian Contract Act, 1872, whether the bank would succeed in the said suit?
Answer:
As per Sections 178 and 178A of the Indian Contract Act, 1872 the deposit of titl e deeds with
the bank as security against an advance constitutes a pledge. As a pledge, a bankers
rights are not limited to his interest in the goods pledged. In case of injury to the goods or
their deprivation by a third party, the pledgee would have all such remedies that the owner
of the goods would have against them. In Morvi Mercantile Bank Ltd. vs. Union of India , theSupreme Court held that the bank (pledgee) was entitled to recover not only the amount of
the advance due to it, but the full value of the consignment. However, the amount over and
above his interest is to be held by him in trust for the pledgor. Thus, the bank will succeed in
this claim of`190,000 against Railway.
(C) A offered to purchase shares of XYZ Ltd on 1stMay 2012. The company made allotment of
shares on 30thNovember 2012. A refused to accept the shares. Can it do so?
Answer:
According to Sec 6(2) of the Indian Contract Act, 1872 an offer is revoked by lapse of timeprescribed in the proposal or by lapse of reasonable time without communication of
acceptance. What is reasonable time is question of fact in each case.
In the given case the offer lapsed as it was not accepted within reasonable time g[Ramsgate
Victoria Hotel Co. vs Montefiore.]
(D) P, Q and R jointly borrowed 500,000 from W. The whole amount was repaid to W by Q.
Decide in the light of the Indian Contract Act, 1872 whether:
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(i) Q can recover the contribution from P and R,
(ii) Legal representatives of P are liable in case of death of P,
(iii) Q can recover the contribution from the assets, in case R becomes insolvent.
Answer:Section 42 of the Indian Contract Act, 1872 requires that when two or more persons have
made a joint promise, then, unless a contrary intention appears by the contract, all such
persons jointly must fulfill the promise. In the event of the death of any of them, his
representative jointly with the survivors and in case of the death of all promisees, the
representatives of all jointly must fulfill the promise.
Section 43 allows the promisee to seek performance from any of the joint promisors. The
liability of the joint promisors has thus been made not only joint but "joint and several".
Section 43 provides that in the absence of express agreement to the contrary, the promisee
may compel any one or more of the joint promisors to perform the whole of the promise.
Section 43 deals with the contribution among joint promisors. The promisors, may compel
every joint promisors to contribute equally to the performance of the promise (unless a
contrary intention appears from the contracts). If any one of the joint promisors makes
default in such contribution the remaining joint promisors must bear the loss arising from such
default in equal shares.
As per the provisions of above sections,
(i) Q can recover the contribution from P and R because P,Q, Rare joint promisors.
(ii) Legal representative of P are liable to pay the contribution to Q. However, a legal
representative is liable only to the extent of property of the deceased received by him.
(iii) 'Q' also can recover the contribution from R's assets.
2. (A) W offered to sell his flat to H for 15 lacs. H replied purporting to accept the offer andenclosed a cheque for 8 lacs. He also promised to pay the balance of 7 lacs in 20
installments of 35000 each. Examine the validity of contract.
Answer:
According to Section 7 of the Indian Contract Act, 1872, acceptance must be unqualified
and absolute, it must conform to offer. If the parties are not ad idem on all matters
concerning the offer and acceptance, there is no contract.
In the given case the acceptance is qualified and hence not a valid acceptance. As a
result there is no valid contract.
(B) S' agreed to become an assistant for 5 years to 'P' who was a Lawyer practicing at Delhi.It was also agreed that during the term of agreement 'S' will not practise on his own accountin Delhi. At the end of one year, S' left the assistantship of 'P' an d began to practise on hisown account. Referring to the provisions of the Indian Contract Act, 1872, decide whether S'
could be restrained from doing so?
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Answer:
An agreement in restraint of trade/ business/ profession is void under Section 27 of the Indian
Contract Act,1872. But an agreement of service by which a person binds himself during the
term of the agreement not to take service with anyone else directly or indirectly to promote
any business in direct competition with that of his employer is not in restraint of trade.
However, in the given case S cannot be restrained by an injunction from doing so.
(C) Minor under the Indian Contract Act, 1872 is always beneficiary.
Answer:
As per the Indian Contract Act, 1872 an agreement with a minor is void ab initio. However there
is nothing that debars him from becoming a beneficiary i.e. payee, endorsee or promisee in a
contract. The law does not regard him incapable of accepting a benefit.
3. (A) What tests can be applied in determining whether a person is an agent of another?
Answer:
The test for determining whether a person is or is not an agent is whether that person has the
capacity to bind the principal and make him answerable to a third person by bringing him (the
principal) into legal relations with the third person and thus establish a privity of contract
between the party and the principal. If yes, he is agent, otherwise not. This relationship of
agency may be created either by express agreement or by implication.
(B) C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B,
contracts with X to give time to B. Is A discharged from his liability?
Answer:
According to Section 136 of the Indian Contract Act, 1872, where a contract to give time to the
principal debtor is made by the creditor with a third person and not with the principal debtor,
the surety is not discharged. In the given question the contract to give time to the principal
debtor is made by the creditor with X who is a third person. X is not the principal debtor. Hence
A is not discharged.
(C) R found a purse in MB Shopping Plaza. He deposited the purse to the manager of the mall so
that it can be handed over to true owner. However the purse remained unclaimed. R now wants
to claim the purse back. Will R succeed in his claim?
Answer:According to the Indian Contract Act, 1872, t ill the owner is found out, the property in goods
will vest with the finder and he can retain the goods as his own against the whole world
(except the owner, of course).
So in the given case R will succeed in his claim.
4. (A)B buys goods from A on payment but leaves the goods in the possession of A. A then
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(i) Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer
may waive the condition,
(ii) Where the buyer elects to treat the breach of condition as breach of a warranty.
(iii) Where the contract of sale is non-severable and the buyer has accepted the whole
goods or any part thereof.
(iv) Where the fulfillment of any condition or warranty is excused by law by reason of
impossibility or otherwise.
(C) A contracts to sell B, by showing sample, certain quantity of fairness lotion described asImported. The lotion when delivered matches with the sample, but is not imported but
Made in India of the same company. Referring to the provisions of Sale of Goods Act, 1930advise the remedy, if any, available to B.
Answer:
B has a remedy to repudiate the contract. According to section 15 of the Sale of Goods Act,1930, when the goods are sold by sample as well as by description, there shall be an implied
condition that the goods shall correspond to the sample as well as description. In this case, A
supplied fairness lotion which did correspond with the sample but was not correspond to the
description of Imported. Hence the B has the right to repudiate the contract.
(D) K the owner of a Maruti Santro car wants to sell his car. For this purpose he hand over thecar to M, a mercantile agent for sale at a price not less than 150, 000. The agent sells thecar for 90, 000 to B, who buys the car in good faith and without notice of any fraud. M
misappropriated the money also. K sues B to recover the Car. Decide given reasons whether
K would succeed.
Answer:
The problem in this case is based on the provisions of the Sale of Goods Act, 1930 contained
in the proviso to Section 27. The proviso provides that a mercantile agent is one who in the
customary course of his business, has, as such agent, authority either to sell goods, or to
consign goods, for the purpose of sale, or to buy goods, or to raise money on the security of
goods [Section 2(9)]. The buyer of goods form a mercantile agent, who has no authority from
the principal to sell, gets a good title to the goods if the following conditions are satisfied:
(1) The agent should be in possession of the goods or documents of title to the goods with
the consent of the owner.
(2)
The agent should sell the goods while acting in the ordinary course of business of amercantile agent.
(3) The buyer should act in good faith.
(4) The buyer should not have at the time of the contract of sale notice that the agent has
no authority to sell.
In the instant case, M, the agent, was in the possession of the car with Ks consent for the
purpose of sale. B, the buyer, therefore obtained a good title to the car. Hence, K in this
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case, cannot recover the car from B. A similar decision, in analogous circumstances, was
taken in Folkes v. King
(E) X buys synthetic pearls for a high price thinking that they are natural pearls. The sellerthough understood Xs intention, kept silent. Examine the remedies X has againstthe seller as
per the Sale of Goods Act, 1930.
Answer:
X has no remedy against the seller as the doctrine of Caveat Emptor will apply.
Caveat emptor means let the buyer beware, i.e. in sale of goods the seller is under no
duty to reveal unflattering truths about the goods sold. Therefore, when a person buys some
goods, he must examine them thoroughly. If the goods turn out to be defective or do not suit
his purpose, or if he depends upon his skill and judgment and makes a bad selection, he
cannot blame anybody excepting himself.
The rule is enunciated in the opening words of section 16 of the Sale of Goods Act, 1930
which runs thus: Subject to the provisions of this Act and of any other law for the time being
in force, there is no implied warranty or condition as to the quality or fitness for any particular
purpose of goods supplied under a contract of sale
6. Examine the following cases in light of laws relating to employees:
(A) Employees of an electricity generation station claimed that their unit is covered underthe definition of factory considering the process of transforming and transmission of
electricity generated at the power station as a manufacturing process. Will their claim
succeed?
Answer:
As per section 2(k) of The Factories Act, 1948, manufacturing process means any process for-
(i) Making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning,
breaking up, demolishing, or otherwise treating or adapting any article or substance with a
view to its use, sale, transport, delivery or disposal, or
(ii) Pumping oil, water, sewage or any other substance; or;
(iii) Generating, transforming or transmitting power; or
(iii) Composing types for printing, printing by letter press, lithography, photogravure or other
similar process or book binding;
(iv) Constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels;
(Inserted by the Factories (Amendment) Act, 1976, w.e.f. 26-10-1976.)
(v) Preserving or storing any article in cold storage;
Process undertaken at electricity generating station, substation transferring and transmitting
electricity is not a manufacturing process and are not thus factory- [Delhi Electricity Supply
Undertaking vs. Management of DESU, AIR(1973)SCC 365]
(B) D joined BE Engineering Works (P) Ltd. on 5.3.2012. On 8thDecember, 2012 he was laid off as
the management wanted to slow down due to shortage of power. X was not allowed lay-off
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compensation on the ground that his period of service was less than one year. Is the claim of
management valid under the Industrial Disputes Act, 1947?
Answer:
Under Sec. 25-B of Industrial Disputes Act ,1947, an employee shall deemed to be in continuous
service of one year if has worked for at least 240 days during the period of 12 months precedingthe reference date of calculation.
D has worked for 273 days before he was laid off. So he is entitled to lay-off compensation and
can claim the same.
(C) Y, a laboratory assistant consumes a chemical during the night shift and dies. The chemical
was not of the laboratory kit. His wife claimed compensation under the Employees
Compensation Act,1923.
Answer:
The Employer is not liable to pay compensation as it is a case of suicide by the employee. The
apex court observed in Mackenzie & Co. v. Ibrahim Mohammad Isaac(1970) S C 1906 that the
words in course of employment means in course of the work which the employee who is
employed to do and which is incidental to it. Further the words during the course of
employment the injury should result from some risk incidental to duties of service owing to the
employer. If the accident is inclined with some risk situated with employment, then the
employee would succeed in getting compensation.
7. State your views on the following in light of laws relating to employees:
(A) XYZ(P) Ltd. imposed a fine on P, one of its employees for regularly reporting late for work. The
fine was imposed on 4th
April, 2013. The management wanted to recover the amount inSeptember, 2013 during half yearly increment. Can the Company recover as per the Payment of
Wages Act,1936?
Answer:
As per Sec. 8(7) of The Payment of Wages Act, 1936 no fines can be recovered after expiry of
90 days from the date on which it is imposed. So XYZ (P) Ltd. will not be able to recover the fine
in September, 2013 as the gap exceeded 90 days.
(B) X is engaged in two types of job in a factory, that of a mechanic and watchman. Thewage rates are different for two different jobs. The employer calculates his minimum wage at
an average rate. State whether this is correct as per the Minimum Wages Act, 1948?Answer:
Where an employee does two or more classes of work to each of which a different minimum
rate of wages is applicable, the employer shall pay to such employee in respect of the time
respectively occupied in each such class of work, wages at not less than the minimum rate
in force in respect of each such class. Thus employer just cannot pay him at simple average
rate of both wages of both classes of job.
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(C) The payment of contribution to provident fund of an employee, to be made by hisemployer, who has become insolvent, a preferential payment as per the provisions of theEmployees Provident fund and Miscellaneous Provisions Act, 1952.
Answer:
According to Section 11 of the Employees Provident Fund and Miscellaneous Provisions Act
1952, if the employer is adjudged as insolvent or if the employer is a company and an order
winding thereof has been made, the amount due from the employer whether in respect of
the employees contribution or employers contribution must be included among the debts
which are to be paid in priority to all other debts in the distribution of the property of the
insolvent or the assets of the company. In other words, this payment will be a preferential
payment provided the liability thereof has accrued before this order of adjudication or
winding up is made.
8. (A) Y is working as a marketing personnel in a company . The following payments weremade to him by the company during the previous financial year
(i) overtime allowance,
(ii) dearness allowance
(iii) commission on sales
(iv) employers contribution towards pension fund
(v) value of food.
Examine as to which of the above payments form part of salary of WX under the provisions
of the Payment of Bonus Act, 1965.
Answer:According to Section 2(21) of the Payment of Bonus Act, 1965 salary and wages means all
remuneration other than remuneration in respect of overtime work, capable of being
expressed in terms of money, which would if the terms of employment, express or implied,
were fulfilled, be payable to an employee in respect of his employment, or of work done in
such employment. It includes dearness allowance, i.e. all cash payment by whatever namecalled, paid to an employee on account of a rise in the cost of living. But the term excludes:
(i) Any other allowance which the employee is for the time being entitled to;
(ii) The value of any house accommodation or of supply of light, water, medical
attendance or other amenities of any service or of any concessional supply of food
grains or other articles;
(iii) Any traveling concession;
(iv) Any contribution paid or payable by the employer to any pension fund or for benefit of
the employee under any law for the time being in force.
(v) Any retrenchment compensation or any gratuity or other retirement benefit payable to
the employee or any ex-gratia payment made to him; and
(vi) Any commission payable to the employee.
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Therefore in the given problem the Mall owner as principal owner is liable for the payment of ESIcontribution to its employees in canteen/parking space.
(D) How does the Child Labour (Prohibition and Regulation) Act, 1986 define a child? How isthis definition different from that under the Factories Act, 1948?
Answer:
Under the Child Labour (Prohibition and Regulation) Act, 1986 a child means a person whohas not completed his fourteen years of age.
However the Factories Act, 1948 defines a child as a person who has not completed his
fifteenth year of age which is different from the definition mentioned under the ChildLabour(Prohibition and Regulation) Act, 1986.
9. (A) P draws a cheque of 15000 in favour of Q in lieu of payment of debt. P after issuing thecheque to Q instructed the bank for stop payment in respect of the cheque issued. Is this an
offence under the Negotiable Instruments Act, 1881?
Answer:
Section 138 of the Negotiable Instruments Act, 1881 states that where any cheque drawn by
a person on an account maintained by him with a banker for payment of any amount of
money to another person from out of that account for the discharge, in whole or in part, of
any debt or other liability, is returned by the bank unpaid either because of the amount of
money standing to the credit of that account is insufficient to honour the cheque or that it
exceeds the amount arranged to be paid from that account by an agreement made withthat bank, such person shall be deemed to have committed an offence .
Asking payee not to present the cheque or issuing Stop Payment instructions to t he Bankergets covered u/s 138. Hence P is deemed to have committed offence.
(B) Would the answer differ in (A) if P had made a gift to Q?
Answer:
If cheque is issued only as a gift and not in discharge of any debt, P cannot be booked u/s
138 of the Negotiable Instruments Act, 1881. But onus of proof lies only on P. If he fails to
prove, presumption u/s 139 of the Negotiable Instruments Act, 1881 shall be extended.
Section 139 in The Negotiable Instruments Act, 1881 states It shall be presumed, unless the
contrary is proved, that the holder of a cheque received the cheque of the nature referred to insection 138 for the discharge, in whole or in part, of any debt or other liability.
Stop Payment instructions shall not preclude him from his liability.
(C) A promissory note is made without specifying the time for payment. The holder added on
demand on face of the instrument. Does thatamount to changing character of the instrument as
per the Negotiable Instrument Act,1881?
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Answer:
A promissory note made without specifying time is payable on demand. So adding on
demand on face of the instrument does not change the character of the instrument.
10. (A) X has balance of 5500/- in YZ Bank. He draws a cheque of 20,000 in favour of C
knowing fully that he has no O/D facility. The cheque is dishonoured. Is notice of dishonour to Xnecessary?
Answer:
Notice of dishonour is not necessary when the party charged could not suffer damage for want
of notice. As such notice of dishonour to X is not necessary.
(B) P draws a bill on Q. Q accepts the bill without any consideration. The bill is transferred to R
without consideration. R transferred it to S for value.Can S sue the prior parties of the bill?
Answer:
Section 43 of the Negotiable Instruments Act, 1881 provides that a negotiable instrument
made, drawn, accepted, indorsed or transferred without consideration, or for a
consideration which fails, creates no obligation of payment between the parties to the
transaction. But if any such party has transferred the instrument with or without endorsement
to a holder for consideration, such holder, and every subsequent holder deriving title from
him, may recover the amount due on such instrument from the transferor for consideration or
any prior party thereto.
In the given case, P has drawn a bill on Q and Q accepted the bill without consideration
and transferred it to R without consideration. Later on in the next transfer by R to S is for
value. According to provisions of the aforesaid section 43, the bill ultimately has been
transferred to S with consideration. Therefore, S can sue any of the parties i.e. P, Q or R, as S
obtained a good tit le on it being taken with consideration.
(C) P, a major, and Q, a minor, executed a promissory note in favour of R. Examine withreference to the provisions of the Negotiable Instruments Act,1881 the validity of thepromissory note and whether it is binding on P and Q.
Answer:
Every person competent to contract has capacity to incur liability by making, drawing,
accepting, endorsing, delivering and negotiating a promissory note, bill of exchange or
cheque (Section 26, para 1, Negotiable Instrument Act, 1881).
As a minors agreement is void, he cannot bind himself by becoming a party to a negotiable
instrument. But he may draw, endorse, deliver and negotiate such instruments so as to bind
all parties except himself (Section 26, para 2).
In view of the provisions of Section 26 explained above, the promissory note executed by P
and Q is valid even though a minor is a party to it. Q, being a minor is not liable; but his
immunity from liability does not absolve the other joint promisor, namely P from liability.
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12. (A) Mere sharing in the profits of a business is not a conclusive proof of existence ofpartnership.- Comment.
Answer:
According to Section 4 of the Indian Partnership Act,1932, Partnership is the relation
between persons who have agreed to share the profits of a business carried on by all or any
of them acting for all.This clearly reveals that sharing of profits of a business is an important
criterion of partnership. But in determining whether it is conclusive evidence of partnership or
not, the regard shall be had to the real relations between the parties, as shown by all
relevant facts taken together. Section 6 of the Indian Partnership Act, 1932, categorically
lays down that receipt by a person of a share of the profits of a business does not by itself
make him a partner with the persons carrying on the business as there are number of cases
where the persons sharing the profits do not have relationship of partners.
For instance, in the following cases partnership relation does not exist:-
1. Joint owners of some property in sharing of profits or gross returns arising from the
property.2. A widow or child of a deceased partner who receives a share of profit.
3. A servant or agent who receives a share of profit as part of his remuneration.
5. A person who receives a share of profit in consideration of sale of business or goodwill
of the business.
Hence, mere participation in the profits of a trade is not a conclusive evidence of
partnership.
Thus test of partnership can be analyzed as under:
i) The partnership is determined by real relation among partners and relation must show
existence of mutual agency.ii) The sharing of profit is prima facie evidence but not conclusive evidence of partnership.
(B) Power to expel a partner must be exercised in good faith. State your views.
Answer:
Normally it is not possible for the majority of partners to expel a partner from the firm without
satisfying the conditions as laid down in Section 33 of the Indian Partnership Act, 1932. The
essential conditions before expulsion can be done are:
(i) power of expulsion should exist in the partnership deed (contract between the partners.
(ii) power has been exercised by the majority of the partners in good faith.
The test of good faith includes:
(a) that the expulsion must be in the interest of the partnership;
(b) that the partner to be expelled is served with a notice; and
(c) that the partner has been given an opportunity of being heard.
If a partner is otherwise expelled, the expulsion is null and void.
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use in the ordinary course of the firms business. A does not give the furniture to the firm,instead brings it to his own use. The dealer D, who is unaware of the private use of furnitureby P, claims the price from the firm. The firm refuses to pay for the price, on the ground thatthe furniture was never received by it (firm). Referring to the provisions of the IndianPartnership Act, 1932 decide:
Whether the Firms contention shall be tenable?
Answer:
The problem in the question is based on the Implied Authority of a partner provided in
Section 19 of the Indian Partnership Act 1932. The section provides that subject to the
provisions of Section 22 of the Act, the act of a partner, which is done to carry on, in the
usual way, business of the kind carried on by the firm, binds the firm. The authority of a
partner to bind the firm conferred by this section is called his Implied Authority [Sub-Section
(i) of section 19]. Furthermore, every partner is in contemplation of law the general and
accredited agent of the partnership and may consequently bind all the other partners by his
acts in all matters which are within the scope and object of the partnership.
Considering the above provisions and explanation, the questions as asked in the problem
may be answered as under:
The firms contention is not tenable, for the reason that the partner, in the usual course of the
business on behalf of the firm has an implied authority to bind the firm. The firm is, therefore,
liable for the price of the furniture.
However, the firm PQR can take action against P, the partner but it has to pay the price of
furniture to the dealer D.
(C) "Implied authority of a partner can be extended or restricted. Discuss the abovestatement in the light of the provisions of the Indian Partnership Act, 1932.
Answer:
Section 19 (2) of the Indian Partnership Act, 1932, provides that the act of a partner which is
done to carry on the usual way, business of the kind carried on by the firm bind the firm,
provided the act is done in the firm's name or in any manner expressing or implying an
intention to bind the firm. The implied authority of a partner extends only to such acts which
are common in the type of business carried on by the firm and are done by him in usual way
of carrying on the firm's business. Thus, if it is usual to give credit to customers, in a particular
business, the giving of credit by a partner to a customer will bind the firm. However, if a usual
act is done in an unusual manner, this must raise a suspicion as to the authority of a partner
and the protection on the ground of implied authority may not the available.
14. (A) X, Y and Z are partners in a firm. As per terms of the partnership deed, X is entitled to 20
percent of the partnership property and profits. X retires from the firm and dies after 15 days. Y
and Z continue business of the firm without settling accounts. What are the rights of Xs legal
representatives against the firm under the Indian Partnership Act, 1932?
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and `60,000 is of `10,000 for which the right of set off is not available. Therefore, B & Co
cannot compel A to accept `10,000 as the final settlement.
(B) When is a LLP not bound by act of its members?
Answer:
A limited liability partnership is not bound by any act of a member in dealing with a person if
i) the member in fact has no authority to act for the limited liability partnership by doing
that thing;
ii) the person knows that the member has no authority or does not know or believe
him to be a member of limited partnership.
(C) A Limited Liability Partnership is a body corporate, so shall have perpetual succession and
can carry on business with any number of partners under the Limited Liability Partnership Act,2008. Do you agree?
Answer:
This is discussed in Section 6 of the Limited Liability Partnership Act, 2008.As per the section
(1) Every limited liability partnership shall have at least two partners.
(2) If at any time the number of partners of a limited liability partnership is reduced below two
and the limited liability partnership carries on business for more than six months while the number
is so reduced, the person, who is the only partner of the limited liability partnership during the
time that it so carries on business after those six months and has the knowledge of the fact that it
is carrying on business with him alone, shall be liable personally for the obligations of the limited
liability partnership incurred during that period.
16. (A) List the circumstances under which an LLP formed under the Limited Liability PartnershipAct, 2008 may be wound up by tribunal?
Answer:
A limited liability partnership may be wound up by the Tribunal,
(i) the limited liability partnership decides that limited liability partnership be wound up by the
Tribunal;
(ii) If, for a period of more than six month, the number of partners of the limited liability
partnership is reduced below two;
(iii) if the limited liability partnership is unable to pay its debts;
(iv) if the limited liability partnership has acted against the interests of the sovereignty andintegrity of India, the security of the State or public order;
(v) if the limited liability partnership has made a default in filing with the Registrar the Statement
of Account and Solvency or annual return for any five consecutive financial years; or
(vi) if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership
be wound up.
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(B)Limited Liability Partnerships are body corporate. Do you agree? Justify.
Answer:
Limited Liability Partnerships formed and registered under Limited Liability Partnership Act,
2008 are body corporate. All LLPS have the following features:
(i) A limited liability partnership is a body corporate formed and incorporated under this Actand is legal entity separate from that of its partners.
(ii) A limited liability partnership shall have perpetual succession.
(iii) Any change in the partners of a limited liability partnership shall not affect theexistence, rights or liabilities of the limited liability partnership.
(iv) Save as otherwise provided, the provisions of the Indian Partnership Act, 1932 shall notapply to a limited liability partnership.
(v) Any individual or body corporatemay be a partner in a limited liability partnership.
(C) Explain the concept of whistle blowing with respect to the Limited liability Partnership Act,2008.
Answer:
The concept has been discussed in Sec 31 of the Limited liability Partnership Act, 2008.As per thesec-
(1) The Court or Tribunal may reduce or waive any penalty leviable against any partner or
employee of a limited liability partnership, if it is satisfied that-
(a) such partner or employee of a limited liability partnership has provided useful informationduring investigation of such limited liability partnership; or
(b) when any information given by any partner or employee (whether or not during
investigation) leads to limited liability partnership or any partner or employee of suchlimited liability partnership being convicted under this Act or any other Act.
(2) No partner or employee of any limited liability partnership may be discharged, demoted,
suspended, threatened, harassed or in any other manner discriminated against the terms
and conditions of his limited liability partnership or employment merely because of his
providing information or causing information to be provided pursuant to sub-section (1).
17. (A)Money laundering is a national phenomenon and appropriate measures at nationallevel are required. State your views.
Answer:
Today, globalization and economic and financial crisis are the terms used to describe changes
in society and the world economy. It is widely agreed that globalization has increased
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international trade and cultural exchanges, removing economic barriers. Increasing
interdependence in international relations, besides positive aspects undoubtedly bring some
negative aspects related to economy and security and public order. An economic and
financial crisis that occurs in a country directly affects not only this country but the entire
geographic region and even the world economy as a whole.
Globalization in the current economic crisis will always lead to economic recession, lower loan
rates, low budget world countries, the general economic downturn, which favors the growth ofthe underground economy and crime especially the phenomena of money laundering.
Thus money laundering is not national but international phenomenon.
(B) Money laundering can provide short term benefits to economy. Comment.
Answer:
The statement is not true. The genesis of money laundering is the practice of concealing identity,
source, or destination of illegally gained money. Money laundering from illegal activities directly
affect the freedom of access to investment, affecting the labor market laws, marketing,
consumption and production itself. Money launder is conversi on of dirty money to cleanmoney and therefore illegal.
18. (A) On whom does the burden of proof vest under the PMLA, 2002?
Answer:
When a person is accused of having committed the offence under section 3, the burden of
proving that proceeds of crime are untainted property shall be on the accused. [Sec 24, The
PMLA, 2002]
B) What are the obligations of banking companies under the PMLA, 2002?
Answer:
Section 12 of the Prevention of Money Laundering Act, 22, cast a duty upon every banking
company, financial institution and intermediary to
(a) Maintain a record of all transaction, the nature and value of which may be prescribed
whether such transactions comprise of a single transaction or a series of transactions
integrally connected to each other and where such series of transactions take place within
a month. Such record should be maintained for a period of ten years from the date of
transaction between the clients and the banking company or financial institution or
intermediary as the case may be;(b) Furnish information of transactions referred to in clause (a) to the Director within such
time as may be prescribed;
(c) Verify and maintain the records of the identity of all its clients in such a manner as may
be prescribed.
(C) What is the objective of Know Your Customer(KYC) guidelines?
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Answer:
Know your customer (KYC) refers to due diligence activities that financial institutions and
other regulatedcompanies must perform to ascertain relevant information from their clients
for the purpose of doing business with them.
The objective of KYC guidelines is to prevent banks from being used, intentionally orunintentionally, by criminal elements for money laundering activities. Related procedures also
enable banks to know or understand their customers, and their financial dealings better. This
helps them manage their risks prudently. Banks usually frame their KYC policies incorporating thefollowing four key elements:
Customer Acceptance Policy;
Customer Identification Procedures;
Monitoring of Transactions; andRisk management.
Section BCorporate Laws and Governance
19. (A) X, a minor was gifted 100 shares of TMP Ltd by his father Y. In light of the CompaniesAct, 1956, decide how far can a minor become a member of a company under theCompanies Act, 1956?
Answer:
The Company Law Board has laid down in Nandita Jain v. Bennet Coleman & Co. Ltd. that a
minor can become a member provided four conditions are fulfilled:
(a) Company must be a Co. Ltd. by shares.
(b) Shares are fully paid up.
(c) Application for transfer is made on behalf of minor by lawful guardian.
(d) The transfer is manifestly for the benefit of the minor.
This was also confirmed in S.L. Bagree v. Britannia Industries.
In also Diwan Singh v. Minerva Films Ltd. [(3958) 28 Comp. Cases 191 (Punj.), (1959) 29 Comp.
Cases 263 (Punj.)],the Punjab High Court held that there is no legal bar to minor becoming a
member of a company by acquiring shares (by way of transfer) provided the shares are fully
paid and no further obligation or liability is attached to them.
Minor can become member by transfer or transmission, but a company may not allow aminor to be a member by allotment.
(B) PQR Ltd was in the process of incorporation. Promoters of the company signed anagreement for the purchase of certain furniture for the company and payment was to bemade to the suppliers of office equipments by the company after incorporation. Thecompany was incorporated and the office equipments were used by it. Shortly afterincorporation, the company went into liquidation and the debt could not he paid by the
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company for the purchase of above office equipments. As a result suppliers sued thepromoters of the company for the recovery of money.
Examine whether promoters can he held liable for payment under the following situations:
(i) When the company has already adopted the contract after incorporation?
(ii) When the company makes a fresh contract with the suppliers in terms of pre-incorporationcontract?
Answer:
The promoters remain personally liable on a contract made on behalf of a company which
is not yet in existence. Such a contract is deemed to have been entered into personally by
the promoters and they are liable to pay damages for failure to perform the promises made
in the companys name even though the contract expressly provided that only the
company shall be answerable for performance.
In Kelner v. Baxteralso it was held that the persons signing the contracts viz. Promoters were
personally liable for the contract.Further, a company cannot ratify a contract entered into by the promoters on its behalf
before its incorporation. Therefore, it cannot by adoption or ratification obtain the benefit of
the contract purported to have been made on its behalf before it came into existence as
ratification by the company when formed is legally impossible. The doctrine of ratification
applies only if an agent contracts for a principal who is in existence and who is competent
to contract at the time of contract by the agent.
The company can, if it desires, enter into a new contract, after its incorporation with the
other party. The contract may be on the same basis and terms as given in the pre-
incorporation contract made by the promoters. The adoption of the pre-incorporation
contract by the company will not create a contract between the company and the other
parties even though the option of the contract is made as one of the objects of thecompany in its Memorandum of Association. It is, therefore, safer for the promoters acting on
behalf of the company about to be formed to provide in the contract that: (a) if the
company makes a fresh contract in terms of the pre-incorporation contract, the liability of
the promoters shall come to an end; and (b) if the company does not make a fresh contract
within a limited time, either of the parties may rescind the contract.
Thus applying the above principles, the answers to the questions as asked in the paper can
be answered as under:
(i) the promoters in the first case will be liable to the suppliers of office equipments . There
was no fresh contract entered into with the suppliers by the company. Therefore,
promoters continue to be held liable in this case for the reasons given above.
(ii) in the second case obviously the liability of promoters comes to an end provided the
fresh contract was entered into on the same terms as that of pre-incorporation contract.
(C) The Directors of SS Global Ltd wants to change the name of the Company to IT SunshineLtd. What is the procedure to be followed under the Companies Act, 1956?
Answer:
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According to Sec 21 of the Indian Companies Act of 1956, a company can change its namewith the approval of the Central Government.
It must be made in writing and must be made through a special resolution. The steps are asfollows:
1. Board meeting for deciding the agenda for change in name citing the reasons for theproposed change in name of the company.
2. Seeking name availability for proposed new name from the Registrar of Companies.
3. Approval of members in general meeting as per Sec. 21 as the name change will involve
amendments in the Memorandum of Association and Articles of Association. So specialresolutions are required to be passed.
4. Registration of special Resolution with Registrar of Companies through Form-23 (Sec. 192)
5. Filing of form-1B with Registrar of Companies under Sec. 21.
There can be continuation of all legal proceedings (if any) by or against the company with thenew name.
(D) The Articles of Association of KBC Ltd. required all deeds to be signed by the ManagingDirector and the Secretary of the company. Y accepted a deed of mortgage signed by theSecretary and a Working Director. Is the company liable?
Answer:
In consequences of registration of the Memorandum and Articles of Association of a Company
with the Registrar of Companies where all persons dealing with a company are deemed (or
"construed") to have knowledge of the company'sArticles of association andMemorandum ofAssociation.This is called the Doctrine of Constructive Notice.
In the given case the company is not liable and Y cannot claim under this deed.
20. (A) XYZ Ltd issued a prospectus. All the statements contained therein were literally true. It alsostated that the company had paid dividends for a number of years, but did not disclose the factthat the dividends were not paid out of trading profits, but out of capital profits. S, an allottee ofshares wants to avoid the contract on the ground that the prospectus was false in materialparticulars. Decide in light of the Companies Act, 1956.
Answer:
Any person who takes shares on the faith of statement of facts contained in a prospectus
can rescind the contract if those statements are false or untrue. The words untrue
statement have to be construed as explained in Section 65(1)(a), which says that a
statement included in a prospectus shall be deemed to be untrue, if the statement is
misleading in the form and context in which it is included. Again, where the omission from a
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prospectus of any matter is calculated to mislead, the prospectus is deemed, in respect of
such omission to be a prospectus in which an untrue statement is included [Section 65(1)(b)].
In this case, the fact that dividends were paid out of capital profit and not out of trading
profits was not disclosed in the prospectus and to that extent the prospectus contained a
material misrepresentation of a fact giving a false impression that the company was a
profitable one. Hence S can avoid the contract of allotment of shares. (Rex V. Lord Kylsant).
(B) Some of the creditors of QRB Ltd. have complained that the company was formed by thepromoters only to defraud the creditors and circumvent the compliance of legal provisions ofthe Companies Act, 1956. In this context they seek your advice as to the meaning of corporateveil and when the promoters can be made personally liable for the debts of the company.
Answer:
After incorporation the company in the eyes of law is a different person altogether from the
shareholders who have formed the company. The company has its own existence and as a
result the shareholders cannot be held liable for the acts of the company even though the
shareholders control the entire share capita! of the company. This is popularly known as
Corporate Veil. In certain circumstances the courts are empowered to lift or pierce the
corporate veil by ignoring the company and directly examine the promoters and others who
have managed the affairs of the company after its incorporation. Thus, when the corporate
veil is lifted by the courts, (i.e., the courts have disregarded the company as an entity), the
promoters can be made personally liable for the debts of the company. In the following
circumstances, corporate veil can be lifted by the courts and promoters can be held
personally liable for the debts of the company.
(i) Trading with enemy country.
(ii) Evasion of taxes.
(iii) Forming a subsidiary company to act as its agent.
(iv) The benefit of limited liability is destroyed by reducing the number of members below 7in the case of public company and 2 in the case of private company for more than six
months.
(v) Under law relating to exchange control.
(vi) Device of incorporation is adopted to defraud creditors or to avoid legal obligations.
(C) UVW Ltd. was incorporated on 1.4.2012. No General Meeting of the company has been heldso far. Explain the provisions of the Companies Act, 1956 regarding the time limit for holding the
first annual general meeting of the Company and the power of the Registrar to grant extension oftime for the First Annual General Meeting.
Answer:
According to Section 166 of the Companies Act, 1956, every company shall hold its first
annual general meeting within a period of 18 months from the date of incorporation. Since
UVW Ltd. was incorporated on 1.4.2012, the first annual general meeting of the company
should be held on or before 30thSeptember, 2013. Even though the Registrar of Companies is
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empowered to grant extension of time for a period not exceeding 3 months for holding the
annual general meeting, such a power is not available to the Registrar in the case of the fi rst
annual general meeting. Thus, the company and its directors will be liable for the default if
the annual general meeting is held after 30thSeptember 2013.
(D) The Board of Directors of RKLS Ltd. have allotted shares to the investors of the companywithout issuing a prospectus or filing a statement in lieu of prospectus with the Registrar of
Companies, Kolkata. Explain the remedies available to the investors in this regard.
Answer:
According to the provisions of Section 70 and 71 of the Companies Act, 1956, any allotment
of shares by a company without filing a prospectus or statement in lieu of prospectus will
become irregular allotment. The effect of it is that the allotment made by RKLS Ltd will
become voidable at the instance of the allottee i.e., the applicant for the shares within a
period of two months from the date of allotment. The allotment is voidable at the option of
the investor applicant even if the company is in the course of winding up. Further, the
directors liable for the default are also liable to compensate the company and the allottee
respectively for any loss to which the company may have sustained or incurred thereby.
There is a time limit of two years for claiming damages for loss etc., by the investors.
21. (A) The management of XYZ Ltd., has decided to take up the business of food processing
activity because of the downward trend in real estate business. There is no provision in theobject clauses of the Memorandum of Association to enable the company to carry on suchbusiness. State with reasons whether its object clause can be amended. State briefly theprocedure to be adopted for change in the object clause.
Answer:
Section 17(1) of the Companies Act, 1956 permits a company to alter its objects for the
under mentioned purposes:
(1) to carry on business more economically;
(2) to attain the main purpose of the company by new and improved means;
(3) to carry on some business which the existing circumstances may conveniently or
advantageously the combined with be existing business;
(4) to change and enlarge the local area of operations;
(5) to restrict or abandon any of the existing objects;
(6) to sell or dispose of the whole or any part of the undertaking;
(7) to amalgamate with any other company or body of persons.
The case of the company is covered under point No. 3 above and therefore the company
can amend its object clause to take up the business of Food Processing activity.
For change in objects, the following are the steps:
(1) Hold Board meeting for approval of changed object and for notice for holding AGM
and authorise one director or secretary to deal with ROC in this regard.
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(2) Hold the general meeting and pass the special resolution.
(3) File form 23 with ROC with amended MOA.
(4) Get the form registered and get a certificate for registration.
(B) Every shareholder of a company is also known as a member, while every member maynot be known as a shareholder. Examine the validity of the statement and point out thedifference between a member and a shareholder.
Answer:
Member or Shareholders of a company are the persons who collectively constitute the
company as a corporate. Entry, the terms Member and Shareholder and holder of a
share are used interchangeable. (Balkrishan Gupta v. Swadeshi Polytex Ltd.) They are
synonymous in the case of a company limited by shares, a company limited by guarantee
and having a share capital and on unlimited company whose capital is held in definite
shares. But in the case of an unlimited company or a company limited by guarantee, a
Member may not be a shareholder, for such a company may not have a share capital.
A shareholder may be distinguished from a Member as follows:
(1) A registered shareholder is a member but a registered member may not be a
shareholder because the company may not have a share capital.
(2) A person who owns a bearer share warrant is a shareholder but he is not a member as
his name is struck off the register of members. [Section 115(i)]. This means that a person
can be a holder of shares without being a member.
(3) A legal Representative of a deceased Member is not a member until he applies for
registration. He is, however, a shareholder even though his name does not appear on
the register of members.
(4) A person who subscribes to the Memorandum of Association immediately becomes the
member, even though no shares are allotted to him. Till shares are allotted to the
subscriber, he is a member but not a shareholder of the company.
(5) A person who has transferred his shares ceases to be a holder of those shares from the
date of the transfer, but he continues to be a member till such time the transfer is
registered in the name of the transfers in the books of the company.
(C) Advise the ABC Ltd. with reference to the relevant provisions of the Companies Act, 1956about sending notice of board meetings to the following directors:
(i) Mr. X a director, who intimates his inability to attend the next board meeting.
(ii) Mr. Y, who has gone abroad for four months and an alternate director has beenappointed in his place.
(iii) Mr. Z is a director residing abroad representing the foreign collaborator and the Articlesof Association of the company provide for sending notice to such directors.
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Answer:
According to Section 286 of the Companies Act, 1956 notice of every board meeting shall
be given in writing to every Director for the time being in India and at his usual address inIndia to every other Director.
(i) Notice should be given even if Mr. X expressed his inability to attend the next board
meeting. Otherwise Section 286(i) will be violated.
(ii) Although there is no legal precedent in this regard, it would be a prudent practice
(under section 286)that notice should be served to both, the alternative director as well
as the original director Mr. Y, who is outside India, at his usual address in India.
(iii) In the case of a company having foreign collaboration, Articles generally provide that
notice of Board Meeting should be sent by Air Mail. But a question crops up whether
such provisions are valid, as section 286(1) requires services of such notice to a Director
to be sent at his usual address in India. Despite provision contained in the Articles and in
the Act, 1956, it is advisable as a good secretarial practice and taking into account the
fact that it i s a foreign collaboration agreement, and to avoid unnecessary legal tangles
the company may also send notice of the Board Meeting to the director residing
abroad.
(D) Due to internal disputes in the working of BCA Ltd., Mr. X, the Executive Director, and Mr.
Y, a Director, have submitted their resignations and decided to dissociate themselves withthe working of the company. Mr. Z, the Managing Director, decides to refuse theirresignations. Examine whether the Managing Director can compel Mr. X and Mr. Y tocontinue as per the provisions of the Companies Act, 1956.
Answer:
There is no provision in the Companies Act, 1956 relating to the resignation of his office by a
director. If there is any provision in the articles giving the right to a director to resign at any
time, the resignation shall take effect without any need for its acceptance by the Board or
the Company in General Meeting. However, it is not clear what will be the position if the
articles do not contain any provision relating to resignation of directors. One view is that the
ordinary rule of common law as regards resignation by an officer or agent must be followed
namely, resignation by notice given either to the Company or the Board and acceptance of
the same. (Glossop V. Glossop; Latchford Premier Cinema Ltd. V. Ennion) . Another view is
where the resignation says that it is to take effect immediately, acceptance is not necessary
unless the Articles or any provision of law makes it necessary. Further the directors do not
have the power to refuse the resignation of the co-director unless such a provision is there inthe Articles of Association. (Re. Neokratine Safety Explosives Co. of New Ltd. (1891). Hence in
the absence of contrary provisions in Articles, the Company (i.e., Mr. Z) can not compel Mr. Yto continue as a director.
However, the position is somewhat different in the case of a managing or whole time
director. In such a case a formal acceptance of resignation by the company is essential so
as to make it compete and effective. This is because the managing/ wholetime director
occupies two positions (i) one that of a director and (ii) the other that of a whole timeemployee.
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An employee cannot give up office at his pleasure simply by giving notice. The notice or
letter of resignation is required to be accepted by the company and the officer concerned
has to be relieved of his duties and responsibilities, attaching to the office which he has
resigned from. [Achutha Pai Vs. Registrar of Companies (1956) 36 comp. Case 598]. Thus as
the Executive Director, Mr. X is full time employee of the company, the Managing Director
(Mr. Z) can compel him to work as per the terms of employment agreed into at the time of
appointment.
22. (A) Mr. X is already a director of 19 companies. He is being appointed as a director ofanother company named LMP Ltd. Advise Mr. X in regard to the following:
(i) Restrictions on the number of directorships to be held by an individual and whether hecan accept the new appointment in view thereof.
(ii) What are the companies to be excluded for the purpose of calculating the ceiling on theappointment of directors?
Answer:
(i) After the commencement of the Companies (Amendment) Act, 2000, (i.e, w.e.f.
14.12.2000), no person, shall save as otherwise provided in section 276, hold office at the
same time as director in more than 15 companies (Section 275). Earlier the limit was 20
companies.
For calculating the limit certain companies are to be excluded as provided in section 278(1).
In view of the above, it is not possible for Mr. X to be a director in 19 companies after
excluding the companies listed in section 278 (1). In the absence of information about
companies, it is not possible to ascertain the exact number of directorship held by Mr. X for
the purpose of section 275.
There are two possibilities. Either Mr. X is a director in less than 15 companies (say 14
Companies) or 15 Companies. If he is a director in 14 Companies he can accept the
directorship of LMP Limited. If he is already a director in 15 companies, he must within 15
days of his appointment as a director in LMP Ltd., relinquish any of his directorship. If he does
not exercise the option within 15 days and does not vacate his directorship in any of the 15
companies, the appointment in LMP Ltd., shall become void immediately on the expiry of
the 15 days [Section 277(1)].
(ii) For calculating the limit of 15 companies the following companies can be excluded:
(a) a private company which is neither a subsidiary nor a holding company of a public
company.
(b) An unlimited company.
(c) An association not carrying on business for profit or which prohibits the payment of adividend.
(d) A company in which the person is only acting as alternate director.[Section 278(1)].
In making the above said calculation, any company referred to in (a), (b) & (c) above shall
be excluded for a period of 33 months from the date on which the company ceases to fallwithin the purview of these clauses [Section 278(2)].
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(B) A meeting of the Board of Directors of PQR. Ltd. due to be held on 30.6.2013 did not takeplace for want of quorum. As a result, the Company did not hold any Board meeting for thequarter ended 30.6.2013 and there is a complaint that the Company has violated theprovisions of the Act in this regard.
Answer:
According to the provisions contained in Section 288(2) of the Companies Act, 1956, the
provisions of Section 285 relating to the holding of at least one Board meeting in a quarter
cannot be deemed to have been contravened merely by reason of the fact that a Board
meeting which had been called in compliance with the terms of the said section could not
be held for want of a quorum. Thus the allegation that the company has contravened the
provisions of Section 285 in the matter of holding the Board meeting is not correct.
(C) Mr. L, a Director of XYZ Limited proceeding on a long foreign tour, appointed Mr. M as analternate director to act for him during his absence. The articles of the company provide forappointment of alternate directors. Mr. L claims that he has a right to appoint alternatedirector
Answer:
Section 313 of the Companies Act, 1956 provides that the Board of Directors of a company
may, if authorised by its Articles or by resolution passed by the company in general meeting,
appoint an alternate director to act for a director during his absence for a period of not less
than 3 months from the State in which the meetings of the Board are ordinarily held. The
alternate director can be appointed only by the Board of Directors and only in cases where
the Board is authorised by Articles or by the company in general meeting. Hence Mr. L, the
director in question, is not competent to appoint alternate director and the appointment of
Mr. M as alternate director is not valid.
23. (A) PIO under the RTI Act, 2005 rejected Xs application because he wanted too manyinformation which PIO found difficult to handle. Explain the provision.
Answer:
The RTI Act, 2005 does not permit rejection of application simply because it relates to large
number of documents. In any case, in practice officials should consider the processing of
applications as a cooperative activity, such that the official should work with the applicants to
assist them to get information they need. If a large number of records are involved in relation to
a request, the PIO can contact the requestor and clarify their request to see if they can reach a
mediated solution that will give the requestor what they want without unnecessarily burdening
the PIO. This recognises that in some cases at least, a broad application may be simply because
the requestor was not sure what was available. No penalty is shall lie against PIO for anything
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which is in good faith done or intended to be done under this Act or any rule made
thereunder.(Sec 21)
If some information requested work relates to the work of another public authority within the
same department or in another department, The PIO has the power to transfer those parts of the
application to such public authority under Sec 6(3) of the Act.
(B) The residents of HBC locality wanted one street in the area to be repaired before monsoonwhich was in highly dilapidated state. They approached the local MLA who expressed inabilitydue to exhaustion of MLA Funds. The residents refuse to believe. Advice them in context of Rightto Information Act, 2005.
Answer:
The resident may apply to Public Information Officer under RTI Act, 2005 in writing or through
electronic means in English or Hindi or in the official language of the area, to the PIO, specifying
the list of works sanctioned using their MLAs funds and also the balance amount enclosing the
prescribed fee.
The PIO is required to supply information within 30 days from the date of application. Based on
information supplied the residents can satisfy themselves about the truth of their MLAs
statement.
(C) Is the Assistant Public Information Officer (APIO) as assistant to the Public Information Officer
(PIO)?
Answer:
No, the APIO is not an assistant to the PIO. An APIO may be appointed at the sub-district or sub-
divisional level where a public authority may not have an office or administrative unit. This is
particularly useful for Departments of the Government of India which are rarely found below the
district level. Appointment of APIOs may also be useful in States which have human habitats
situated in difficult, remote and inaccessible terrain.
An(y) APIO, like the PIO is an independent information officer in an administrative jurisdiction /
office and will have all the powers (and be responsible for all the functions) as ordained for a
PIO, under the RTI, 2005 Act.
(D) What does Right to Information mean under the RTI Act, 2005?
Answer:
Sec 2(j) of the RTI Act, 2005, states:
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right to information means the right to information accessible under this Act which is
held by or under the control of any public authority and includes the right to
(i) inspection of work, documents, records;
(ii) taking notes, extracts or certified copies of documents or records;
(iii) taking certified samples of material;
(iv) obtaining information in the form of diskettes, floppies, tapes, video cassettes or in
any other electronic mode or through printouts where such information is stored in
a computer or in any other device.
(E) Annual Confidential Reports are confidential and need not be communicated to employees.
State your views quoting a case law in this regard.
Answer:
Annual Confidential Reports:
Judgment of the Supreme Court In the case of Dev Dutt Vs Union of India - 2008 TIOL - SC -
Service - Dated 12-05-2008 - Good entry in ACR - Denial of promotion because only four very
good out of five years E very entry in ACR of a government servant must be communicated
to him within a reasonable time - whether it is poor, fair, average, good or very good - Otherwise
adverse effect on two counts: If he knows: He could improve his performance in future or he can
represent against a lower entry - Non-communication is an arbitrary act violating Article 14 of
the Constitution.
So justice cannot be denied and ACR need to be communicated to employees.
24. (A) What are the key corporate governance lessons from the financial crisis? What issuesneed the most urgent attention?
Answer:
The most obvious lesson from financial crisis is that corporate governance matters. The financial
crisis revealed severe shortcomings in corporate governance. When most needed, existing
standards failed to provide the checks and balances that companies need in order to cultivatesound business practices.
In 2008, the OECD launched an ambitious action plan to develop a set of recommendations for
improvements in priority areas such as remuneration, risk management, board practices and the
exercise of shareholder rights. These recommendations also address how the implementation ofalready-agreed standards can be improved.
Company executives, policy makers, regulators and shareholders need to pay more attention to
corporate governance. When times were good, it seems that many took their eye off the ball
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and now we see the consequences. A firms risingshare price is not necessarily a sign of goodcorporate governance. History tells us that it could actually be the opposite.
There are four key areas: corporate risk management, pay and bonuses, the performance ofboard directors, and the need for shareholders to be more proactive in their role as owners.
(B) How are corporate managers required to respond to Internal Audit findings and
recommendations?
Answer:
Internal audit reports are only of value when managers address the problems and deficiencies
identified by the audits or make informed decisions to accept the risks. Audit Committees and
senior management play an important role by monitoring and enforcing commitments to take
corrective action.
The Chief Audit Executive establishes and maintains a formal follow-up process for monitoring
and ensuring that management actions have been effectively implemented. Senior
management, the CFO and the CEO periodically review high-risk outstanding audit
recommendations as part of a management process. The CEO (or whoever performs this role
with the Chief Audit Executive) meets periodically with the Chief Audit Executive to review audit
reports and outstanding recommendations, and to obtain input on risk and controls.
The Audit Committee receives periodic reports on high-risk audit recommendations that have
not been resolved.
(C) How do you assess the effectiveness of your Internal Audit function?
Answer:
Good internal audit functions have processes for assessing their own effectiveness. They use the
results, together with feedback from the external auditors and other stakeholders, to monitor
trends over time and achieve continuous improvement in their practices and performance.
The Chief Audit Executive develops performance measures for the internal audit function and
agrees them with the Audit Committee. Examples of measurement techniques include:
customer satisfaction surveys, post audit debriefing and internal quality assurance reviews.
(D) How far effective legal frame work is necessary for e-Governance?
Answer:
Implementation of a supporting legal framework is a basic requirement for successful
implementation of e-Governance.
Moving to a digital government required supporting laws; for example, governments need to
enact usage of digital authentication and digital signatures as legally valid. However, this is not
an easy task as enacting laws alone is not sufficient. Implementing a digital signature and
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approval systems (OECD, 1998) within government organisations can be implemented in a fast
way but implementing a Public Key Infrastructure (PKI) for issuing digital signatures for all citizens
may prove difficult and/or expensive. This is especially true for developing countries with a large
population base like India. Existing laws in most developing countries still require the presence of
physical files for decision-making. This is due to the more formalistic nature of public
organizations and related requirement to have a high level of work related record keeping(Welch & Pandey, 2006). However, lack of necessary legal support for digital files will add an
additional layer of complexity during the implementation of e-governance projects as
government staff will be forced to maintain both physical and digital files.
The Government of India now recognizes the requirement to provide a necessary legal
framework for efficient delivery of government services. Electronic Service Delivery Bill, 2011 aims
to cut red tape and corruption by delivering all public services to citizens through electronic
mode. Implementation of the bill will enhance transparency, efficiency, accountability,
accessibility and reliability and by eliminating paperwork on a massive scale, (Electronic Service
Delivery Bill, 2011).
(E) What do you understand by Corporate Governance? Explain, how the provisions of the
Companies Act, 1956 relating to Audit Committee will help in achieving some of the objectives
of Corporate Governance.
Answer:
The vast amount of literature available on the subject ensures that there exist innumerable
definitions of corporate governance. To get a fair view on the subject it would be prudent to
give a narrow as well as a broad definition of corporate governance.
In a narrow sense, corporate governance involves a set of relationships amongst the
companys management, its board of directors, its shareholders, its auditors and other
stakeholders. These relationships, which involve various rules and incentives, provide the
structure through which the objectives of the company are set, and the means of attaining
these objectives as well as monitoring performance are determined. Thus, the key aspects of
good corporate governance include transparency of corporate structures and operations,
the accountability of managers and the boards to shareholders, and corporate responsibility
towards stakeholders.
In a broader sense, however, good corporate governance, the extent to which companies
are run in an open and honest manner, is important for overall market confidence, the
efficiency of capital allocation, the growth and development of countries industrial bases,
and ultimately the nations overall wealth and welfare.
Audit Committee
For better corporate governance, the concept of Audit Committee for companies was
introduced by section 292A of the Companies Act, 1956. Every public company having paid
up capital of not less than `5.00 Crores must have an Audit Committee.
The auditors, the internal auditor, if any, and the director-in-charge of finance shall attend
and participate at meetings of the Audit Committee [Section 292A(5)].
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As per section 292A(6) of the said Act, the function of the Audit Committee includes the
following:
(a) The Audit Committee should discuss with the auditors periodically about internal control
systems, the scope of audit including the observations of the auditors.
(b) The Audit Committee should review half yearly and annual financial statements before
submission to the Board.
(c) The Audit Committee should ensure compliance of internal control systems.
The Audit Committee shall have authority to investigate into any matter in relation to the
items specified in this section or referred to it by the Board and for this purpose, shall have full
access to information contained in the records of the company and external professional
advice, if necessary. [Section 292A(7)].
The recommendations of the Audit Committee on any matter relating to financial
management including the audit report, shall be binding on the Board and if the Board does
not accept the recommendations of the Audit Committee, it shall record the reasons
therefore and communicate such reasons to the shareholders. [Section 292A(8) & (9)].
The above provisions of law relating to powers and functions of the Audit Committee relatingto financial statements will help in achieving one of the objectives of corporate governance,
i.e., accountability and avoidance of poor financial reporting. It also ensures that the
companies are managed in clean and transparent manner.
(F) How does XBRL Web Services change the nature of information sharing and, by extension,
assurance needs?
Answer:
First, as a universal information-format standard for business data, XBRL Web services provides a
platform for establishing common definitions and contexts for each piece of business data
across supply chains, industries and even nations.
Second, XBRL is a critical tool for re-engineering reporting processes within companies and
across the corporate reporting supply chain. The purpose is to help them achieve faster, more
controlled and accurate, and, thereby, more reliable information consolidation and exchange
needed in todays business world.
Third, XBRL Web services enabled information can be made to appear as if it is contained in a
familiar report format, recipients may never even see the entire report but only theinformation
they ask for and receive in their own desktop analytical software.
This means assurance must be enhanced to address the attributes of a format in which
information is instantly accessible and re-usable in an automated manner. In addition to market
and regulatory information demands, we understand managers own needs to get more of the
information resident in company systems and, further, to broaden their analyses to include
specific measurements and non-financial value drivers that are difficult, if not impossible to
obtain today in a timely and effective manner.
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Fourth, XBRL enabled information is ready-to-use upon publication in a Web services
environment.
This means the job of ensuring data efficacy and accuracy is moving from the current periodic
model to one that is more continuous. We are working on relevant standards for this purpose.
Fifth, XBRL encompasses the entire corporate reporting supply chainaccountants included. If
the rest of the supply chain is moving at the speed of business, accountants cannot expect to
continue using manual, paper based processes to provide assurance. Accountants will need to
enable their own tools and systems to quickly absorb and process information in an XBRL Web
services environment. This will make them more effective in their roles of handling, aggregating,
analyzing, reporting on and assuring business information.
New capabilities in business-information exchange are transforming the business world. Through
XBRL Web services, reporting processes will be more efficient and information will be more
accessible. The change will impact the way business works across the entire corporate reporting
supply chainincluding the accounting industry.
Section CEthics
25. (A)What is the difference between business ethics and an ethical business?
Answer:
Business ethics relates to how any organisation conducts its business in order to make profit or
achieve other goals. Any organisation can seek to do business in a way that is guided by ethical
values. Whether an organisation is judged to be an ethical business however, may involve a
subjective assessment of any of the following: the products a